Difficult to see investors bidding for right to set up fabs in India

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Updated: July 8, 2019 4:48:08 PM

Difficult to see them bidding for right to set up fabs, etc, here

FDI inflows, RBI, Overseas direct investment, FDI in India, foreign equity participationWhile India is trying to woo several US firms that have significant operations out of China, the latest budget has a different spin on it.

Given rising US-China trade tensions, and the chance of them boiling over even if they get resolved for now, it is not surprising that several top US manufacturers located out of China should be looking to diversify their export bases. After all, if US president Donald Trump is to slap large tariffs on China, their exports to service the US market will be badly hit versus exports that come out of production bases in Vietnam, for instance.

And, given the size of their export operations—Apple exports around $180 billion out of China as compared to India’s total exports of $330 billion—it is not surprising that several countries are trying to woo these firms, to get them to set up manufacturing units.

With so many countries wooing these firms, it is obvious that the country with the best offer will win. The best offer comprises all manner of tax breaks, free land, low-cost electricity, zero import duties, etc. Indeed, in areas like semi-conductor fabrication units, the quality of electricity supply can even be the determining factor in whether or not a unit moves operations to India; in one Japanese technology-park in Haryana, even power generation was to be done by a Japanese company. Apart from these tax and other sops, other factors that make a difference are the size of the domestic market, the availability of top-class engineering and other such talent.

What is odd is that while India is trying to woo several US firms that have significant operations out of China, the latest budget has a different spin on it. According to the Budget, “in order to boost economic growth and Make in India, the government will launch a scheme to invite global companies through a transparent competitive bidding to set up mega-manufacturing plants in sunrise and advanced technology areas such as semi-conductor fabrication (FAB), solar photo voltaic cells, lithium storage batteries, solar electric charging infrastructure, etc”; India’s imports of just phones and electronic components was $33.7 billion in FY19, so boosting local production is a big policy imperative.

Does the government actually think that global players that are being wooed by various countries will participate in a bid where, presumably, the one that wants the least tax incentives or offers to invest the largest amount, will be allowed to set up operations here?

It is true that several corruption scandals dogged the UPA and the NDA has been reluctant to give concessions to various firms—or even sectors—for fear of being labeled suit-boot-ki-sarkaar, but wanting firms to bid to set up operations in India is ridiculous. It is high time the government realised that capital is mobile and will move to whichever country offers it the best deal.

The government is free not to want to offer incentives to a firm that are different from those offered to others. This may not be a great idea since one firm may offer better exports/employment than others, but if this is what the government wants, it can fashion a uniform policy for all investors; but expecting global firms to bid to set up manufacturing facilities here is deluding ourselves.

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